Operations Management

1. INTRODUCTION TO
OPERATIONS MANAGEMENT,
COMPETITIVE STRATEGY,
COMPETITIVE ADVANTAGE,
TIME BASED COMPETITION.

2. AGENDA
• INTRODUCTION OF OPERATIONS
MANAGEMENT.
• COMPETITIVE STRATEGY
• COMPETITIVE ADVANTAGE
• TIME BASED COMPETITION
• CASE STUDY

4. HISTORY
• Frederick Taylor is known as the father of scientific
management. His shop system employed these steps:
– Each worker’s skill, strength, and learning ability were
determined.
– Stopwatch studies were conducted to precisely set
standard output per worker on each task.
– Material specifications, work methods, and routing
sequences were used to organize the shop.
– Supervisors were carefully selected and trained.
– Incentive pay systems were initiated.

5. HISTORY
• Frank B Gilbreth
• Founder of Work Study
• Envisioned the Motion Study
• Classified motion into seventeen divisions.

6. Operations As A
Transformation Process
OUTPUT
Material
Machines
Labor
Management
Capital
Goods
or
Services at
Competitive
Prices and
Value
INPUT Transformation
process
Feedbac
k
Change

7. Differences between Manufacturers and
Service Operations
• Services:
• Intangible product
• Service cannot be
inventoried
• High customer contact
• Short response time
• Labor intensive
• Manufacturers:
• Tangible product
• Product can be
inventoried
• Low customer contact
• Longer response time
• Capital intensive

8. Operations Management Decisions
• Strategic Decisions: -
Product/Service Design
Process Selection
Capacity Planning
Facility Location
Facility Layout

9. Operations Management Decisions
• Tactical:
• Quality Control
• Production Planning
• Inventory Control

10. Operating Decisions
• These decisions are necessary if the
ongoing production of goods and services
is to satisfy market demands and provide
profits.
• Examples include deciding:
– how much finished-goods inventory to carry
– the amount of overtime to use next week
– the details for purchasing raw material next
month

11. Why OM?
• “In business today, the emphasis is not so
much on what you make, but on how you
do business. Dell makes computers just
like every other PC manufacturer.” Quote:
KT CEO on CNBC 4/99

12. Business Information Flow

13. New Challenges in OM
• Local or national focus
• Batch shipments
• Low bid purchasing
• Lengthy product
development
• Standard products
• Job specialization
 Global focus
 Just-in-time
 Supply chain partnering
 Rapid product development,
And alliances
 Mass customization
 Empowered employees,
teams
From To

14. Trends in OM
• Service sector growing to
80% of non-farm jobs-
See Figure 1-4
• Global competitiveness
• Demands for higher
quality
• Huge technology
changes
• Time based competition
• Work force diversity

15. OPERATIONS STRATEGY
Using Quality, Cost, and Service
as Competitive Weapons

16. OPERATION STRATEGY
• What is Strategy?
Strategy formulation is a process by which a firm determines
how it will compete in industry.
• Business strategy is a long-range game plan of an
organization and provides a road map of how to achieve the
corporate mission.
• Inputs to the business strategy are
– Assessment of global business conditions - social,
economic, political, technological, competitive
– Distinctive competencies or weaknesses - workers, sales
force, R&D, technology, management

17. Developing Operations Strategy
Corporate Mission
Business Strategy
Product/Service Plans
Competitive Priorities
Operations Strategy
Assessment
of Global
Business
Conditions
Distinctive
Competencies
or
Weaknesses

18. Major components of operation
strategy are as follows
• Positioning the Productive system
• Capacity decisions
• Product and Process Technology
• Work force and Job design
• Strategic Implications of operating decisions
• Suppliers and Vertical integration

19. POSITIONING THE PRODUCTIVE
SYSTEM
• Although all the elements of operation strategy
are important and all need to be woven
together, if positioning the productive system
is wrong, the operation strategy will be
ineffective.

20. PRODUCT PROCESS STRATEGIES
PRODUCT LIFE CYCLE
• INTRODUCTION
• GROWTH
• MATURITY
• SATURATION
• DECLINE

21. Stages of a Product’s Life Cycle
Introduction Growth Maturity Decline
B&W TV
Automobile
Video Recorder
Compact Disc Player
Fax Machine
Color Copier
Cell Phone
Color Laser Printer

22. RELATIONSHIP BETWEEN PRODUCT VOLUME
AND THE TYPE OF PRODUCTIVE SYSTEM
INTRODUCTION GROWTH MATURITY DECLINE
PRODUCT/SERVICE STRATEGIES
PROCESS
STRATEGIES
HIGH VOLUME
(continuous)
LARGE
VOLUME
(Mixed)
LOW
VOLUME
(intermittent)
JOB SHOP

23. CAPACITY DECISIONS
Illustration:
• Videotape prices in US and elsewhere began to
decline in 1982 when Fuji Photo Film, Hitachi
Maxwell, and TDK collectively increased capacity to
more than 90%.The massive capacity increase lead to
decrease in sales to relatively 40%. This resulted in
imbalance between demand and supply which created
havoc in industry. It was expected that Overcapacity
would not be absorbed for at least two years.
• Thus poor capacity decisions can virtually negate
good operation strategy in other dimensions.

24. PRODUCT AND PROCESS
TECHNOLOGY
• A company can have its production system
positioned just right in relation to market
requirements but strategy can be ineffective if
company uses obsolete technology.

25. WORK FORCE AND JOB DESIGN
• In spite of fact that advanced process
technologies is reducing number of workers in
manufacturing process, labor will still continue
to be an important input.
• Therefore work rules, job design , wage rates
and entire labor-management relationship
becomes extremely important element in
operations strategy.

26. STRATEGIC IMPLICATIONS OF
OPERATING DECISIONS
• Not only capacity, process costs and labor
costs have strategic importance but also
quality, costs and on-time delivery can be
extremely important in basic strategy of firm.
• A successful way of making strategic impact
on operating decisions is by reducing costs and
controlling quality

27. SUPPLIERS AND VERTICAL
INTEGRATION
• Purchasing and relationships with suppliers
must be consciously formulated to be part of
operations strategy.
• Supplier’s performance is often important in
plant-processes in achieving objectives.

28. WHAT IS
COMPETITIVENESS?
How effectively an organization meets the
wants and needs of customers relative to others
that offer similar goods or services.

29. COST
• Cost is the variable that can allow lower
prices that may be profitable.
• To compete on the basis of price requires an
operations function capable of producing at
low cost.
• Therefore, the effects of location, product
design, equipment use and replacement, labour
productivity, good inventory
• Management, employment of process
technology, and so on all contribute to the
resulting costs.

30. Quality
The effectiveness of this factor has been highlighted
by Japanese market dominance in consumer
electronics, steel, automobiles, machine tools,
where product quality has often been cited as a
reason for preferring the products purchased

31. DEPENDABILITY AS A
SUPPLIER
Customers may compromise on cost or even
quality in order to obtain on-time delivery
when they need an item.

32. FLEXIBILITY/SERVICE
• How standard is a product or service?
• Can variations in the product or service be
accommodated?
• The ability to be flexible will depend a great
deal on the design of the productive system
and the process technology employed.
• It is probably not worthwhile for a producer of
a standardized item in large volume to offer
this kind of flexibility.

33. Price Low Cost U.S. first-class postage
Quality High-performance design
or high quality
Consistent quality
Sony TV
Lexus, Cadillac
Pepsi, Kodak, Motorola
Time Rapid delivery
On-time delivery
Express Mail, Fedex,
One-hour photo, UPS
Flexibility Variety
Volume
Burger King
Supermarkets
EXAMPLES OF DISTINCTIVE
COMPETENCIES

34. Generic Enterprise strategies and
the Operations Function
Overall Cost Leadership
• Low cost
• High product availability
• Usually off-the shelf
• Risks involved is inflexibility

35. Continued…
Differentiation
• High quality
• Innovative in product design
• Flexible
• Risks involved are that customers will tolerate
only some maximum premium for uniqueness

36. Time Based Competition
• Definition : “Time based competition is an
operational strategy focusing on compressing
total throughput time in an organization”
•A fifty percent reduction in cycle time and a
doubling in work-in-process inventory turns
causes productivity to increase from 20-70
percent
•Two things happen: costs decline, and the
organization becomes capable of producing
significantly more output with less resources:

37. How to Reduce Total Cycle Time
• Understanding the way an organization functions is
key to the redesign for time-based competition.
• Every business has basic cycles that govern the way
that paper is processed, parts are manufactured, and
decisions are made.
• Examples of business cycles are customer order,
product development, production, and procurement.

38. • Customer order cycle begins with the placement of an
order by a customer and it ends when you are finally
paid for goods or services rendered.
• But there are activities in between the two events that
consume time.
• Some add value, such as packing and shipping, and
some are non-value adding and delay time, such as
moving the order around the building from mailbox
to mailbox, sitting on a desk, or repetitive motions.
• When a cycle ends, a lot of non-value adding time has
been consumed that may constitute 90-95 percent of
total time.
• If you can identify the non-value added time in the
cycle, you can devise ways to eliminate the causes.
CONTINUED…

39. TECHNIQUES FOR REDUCING
TIME
• Just-In-Time (JIT)
• Kanban
• Stream of variation analysis (SOVA)

40. JUST-IN-TIME
• “A philosophy of manufacturing based on planned
elimination of waste and continuous improvement of
productivity.
• “The primary elements of Just-in-Time are to:
– have only the required inventory when needed,
– improve quality to zero defects,
– reduce lead times by reducing setup times, queue
lengths, and lot sizes,
– accomplish these things at minimum cost”.

41. JIT MANUFACTURING
PHILOSOPHY
• The main objective of JIT manufacturing is to
reduce manufacturing lead times.
• This is primarily achieved by drastic
reductions in work-in-process (WIP).
• The result is a smooth, uninterrupted flow of
small lots of products throughout production.

42. KANBAN
• Kanban system is a simple information system
used by a work center to single its supplier
work center to request a replacement container
and to authorize production of another
container of that particular item.

43. KANBAN SYSTEM
• Kanban is based on the simple idea of replacement of
containers of parts, one at a time.
• Containers are reserved for specific parts, are
purposely kept small, and always contain the same
standard number of parts for each part number.
• There is a minimum of two containers for each part
number, one at the upstream “producing” work center
and one at the downstream “using” work center.

44. STREAM-OF-VARIATION-
ANALYSIS (SOVA)
• The SOVA methodology focuses on the development
of modeling, analysis, and control of dimensional
variation in complex multistage assembly processes
(MAP) such as the automotive, aerospace, appliance,
and electronics industries.
• The presented methodology can help in eliminating
costly trial-and-error fine-tuning of new-product
assembly processes attributable to unforeseen
dimensional errors throughout the assembly process
from design through ramp-up and production.

45. • In the design phase, the SOVA can be used for
analysis, prediction, and optimization of
manufacturing system performance following
the concept of “FTR Design”. Given the
process and tooling design information, SOVA
can simulate the variation propagating
throughout the process and then predict the
final product-dimensional variation and
resultant product geometry.

46. CONTINUED……
• In the production ramp-up phase, SOVA can be used
to identify and isolate fault root causes following the
concept of “FTR Diagnosis”. Given the process and
tooling design information, SOVA can demonstrate
high responsiveness in identifying and isolating root
causes of dimensional variation, that is, identifying
the most severe dimensional faults, localizing the
critical stations contributing most to the final product
variation and speedily isolating the root causes of
dimensional faults—achieving faster required level of
variation .

47. CASE STUDY
GUJARAT AMBUJA
CEMENT LIMITED

48. OBJECTIVE OF THE CASE
• Initiatives taken by the Indian cement major Gujarat
Ambuja Cements Ltd. (GACL) to maintain
profitability and market share despite adverse
industry and market conditions
• The company's efforts to improve its operational
efficiency through productivity enhancement, quality
control, pollution control and cost-cutting measures
are explored in detail.

49. ISSUES
• Importance of using innovative ideas (such as
using groundnut husk and sugarcane waste as
fuel and using sea transportation instead of
land/rail transportation) to achieve superior
results

50. BACKGROUND OF GACL
• Established as Ambuja Cements Private Ltd. (ACPL)
in 1981 by Narotam Satyanarayan Sekhsaria.
• Originally a cotton trader
• Sekhsaria entered the cement business because of
factors such as STABLE DEMAND, LACK OF
SUBSTITUTES AND LIMITED COMPETITION
• Sekhsaria and his two partners, Suresh and Vinod
Neotia, set up APCL.

51. CONTINUED…
• In 1983, the company floated a public issue and its
name was changed to GACL
• In 1993, GACL commissioned its second cement
plant at Ambuja Nagar
• GACL commissioned a 1.5 mtpa (million tons per
annum) plant at Suli in Himachal Pradesh (HP),
named Ambuja Cements Himachal Unit in 1995.
• GACL floated a wholly owned subsidiary in
Mauritius - Cement Ambuja International Ltd.
(CAIL).

52. CONTINUED..
• GACL also acquired a 7.2% stake in
Associated Cement Companies (ACC) for Rs
4.55 billion.
• ACC was the largest manufacturer of cement
in India.
• 14 manufacturing units in India, it had a total
capacity of over 11 mtpa.
• It was one of the largest integrated cement
companies in the world.

53. CONTINUED…
• 1990s, GACL had emerged as one of the most energy
efficient and technologically advanced cement
manufacturers in India.
• GACL had a large distribution network of 11,500
outlets.
• It was one of the first cement companies in the
country to recognize the importance of brand building
• In Dec 1999 GACL acquired a 51% stake in Delhi
based DLF cement for Rs. 3.5 billions

54. CONTINUED….
• The company was the overall market leader in the
Indian cement industry
• It ALSO ranked very high on the profitability
criteria.
• Use of better quality limestone,
• Innovative energy management efforts,
• Strong retail presence in Mumbai, Gujarat and Punjab
gave it a strong edge over its peers .
• Its cost per rupee of sales was much lower than most
of its competitors, resulting in much better operating
margins

55. CONTINUED…..
• Industry observers unanimously agreed that
GACL was the most efficient cement
manufacturer mainly because of its operational
excellence.
• The company had done well in spite of the
fluctuations in the cement industry by adopting
aggressive productivity improvement and cost-
cutting measures

56. WORKING HARD TOWARDS
OPERATIONAL EXCELLENCE
• GACL's strategic farsightedness was evident in
its decision to locate its plants in backward
areas, so as to take advantage of substantial
sales tax and income tax incentives
• GACL's units in the states of Gujarat, HP and
Punjab also received sales tax incentives

57. ENHANCING PRODUCTIVITY
• GACL worked hard to reduce mining expenses.
• Cement companies normally operate their own limestone
mines.
• Mines were not only extremely destructive
environmentally, they were also expensive to operate.
• The explosives used for mining were on the negative list
of imports and substantial costs were involved in
implementing safety measures.
• In 1997, GACL sent its engineers to Australia to study the
GACL implemented new technologies that could access
limestone in smaller areas where blasting was not
possible. extraction of metals.

58. CONTINUED..
• To reduce the noise and vibration that occurred
during the conventional drilling, blasting and
crushing process, the company introduced an
Australian device called Surface Miner

59. CUTTING COSTS
1) POWER:
• Power accounted for a large part of GACL's
cost of production
• Captive power plant would increase savings
• Power sourced from the power grids was
both unreliable and costly.
• GACL's captive power generation cost was
only Rs 1.30 per kilowatt (excluding interest
and depreciation), compared to Rs 4.50 per
kilowatt for power supplied by the Electricity
Boards

60. CONTINUED…
• Around 60.3% of its total power requirement
from these plants, it was also selling the excess
power it generated to the local state
governments.
• Many other simple steps helped reduce
GACL's power consumption from 120
units/tonne of cement in 1987 to 88-90 units
per tonne in 1995 against an industry average
of 121 units per tonne."...

61. IDEAS OF THE CASE
• GACL were able to remain on the top because
of its operations efficiency.
• They gained competitive advantage by refining
their production system.
• Concentrated on cost cutting.
• Due to it gained market share.
• Due to cost cutting their profit margins
increased.